So is it that a miner who mined an orphan block receives the outputs of coinbase transaction but can never spend them?

Kind of.

In such a case the number of bitcoins in circulation would reduce overtime due to creation of orphan blocks.

No, that's not how miners are paid.

Miners are essentially paid by themselves; they are allowed to produce coins out of thin air in the coinbase transaction. There is not some central money supply that the coins come from that pays coins to miners for creating a block.

When an orphan block is mined, the coinbase transaction is basically forgotten. The coins it produces never go into circulation and don't actually exist. Instead they are "replaced" by the block that was accepted by the rest of the network. So no coins are lost.

It's not that the transaction exists and the miner can't spend from it. Rather the transaction doesn't exist (it isn't in the main chain, so to the network it doesn't exist) so the miner can't spend from it. Because it is not part of the main chain it has no effect on Bitcoin's money supply.